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Financial services have a major role to play in the activities of individuals and the economy as a whole. Achieving financial inclusion is not an end in itself, but a means to an end. It is broadly recognized as an important tool for reducing poverty and achieving inclusive economic growth.
Regardless of the income level, individuals and businesses should have access to the appropriate financial services products but with problems around financial literacy, the perception of financial products, disability, and self-exclusion; this has led to the huge financial exclusion numbers. According to World Bank’s 2017 Findex Report, about 1.7 billion adults remain unbanked; the unbanked are consumers who do not have access to basic financial services and products.
Most of these people are resident in regions where there is a huge proportion of informal economy as opposed to formal such as Africa, Asia, and Latin America. Due to the widespread of account holders in developing economies, most of the unbanked adults are concentrated in the developing countries with about half of this number living in 7 countries namely: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan with Nigeria has a record high of 100 million adults who are non-account holders.
Financial exclusion tends to increase the risk of poverty and social exclusion as studies have shown that people who are unable to access basic financial services, tend to incur high costs when trying to manage their money and often makes them vulnerable to illegal or high lending costs. Exclusion from the formal financial system has been identified to be a major barrier to ensuring the poverty-rid world.
Poverty extends beyond the lack of money to a lack of access to the products or channels through which the poor could meet his basic needs so as to improve his wellbeing. As at early 2018, Nigeria had over 87 million people living in extreme poverty with extreme poverty growing at 6 persons per minute. This is the highest in the world as it recently overtook India who had 73 million people in this group.
Inclusion has become a very necessary topic as we talk about eradicating poverty in the world and financial inclusion seeks to provide solutions to the constraints that exclude people from participating in the financial sector. With the advent of technology, results have shown an improvement in the access to financial services which has notably lowered costs and extended financial products to areas that physical bank may not exist.
Consequent upon the foregoing realities, impact investors have intervened in various parts of the world in order to ensure that previously excluded members of the population are availed access to financial services.
One of the impact investors currently embarking on financial inclusion investments is Ford Foundation, the foundation dedicated $1 billion out of its endowment of $13 billion over 10 year period to explore mission-related investments among which is financial inclusion across the world.
In Cambodia also, PG Impact Investments, a global impact investment firm, has made debt investment to a microfinance institution facilitate the growth of loans to low-income clients living in rural Cambodia.
Similarly, NN Investment Partners, the asset manager of the Dutch financial corporation NN Group, has also deployed global equity impact strategy for investing in companies that are helping to unlock the social and economic potential of previously financially excluded people.
Over the years, many countries in Sub-Saharan Africa have also taken great steps in extending financial services beyond the formal structure, as Kenya the lead with its mobile money payment M-Pesa to reach about 80 per cent of Kenyan households in 4 years, and ensure that over 30 million users in 10 countries and processed over 6 billion transactions in 2016 alone.
Financial inclusion policies that focus majorly on transactions and mobile money platforms rather than the whole intermediation process such as access to credit may not effectively lead to financial deepening which should aid economic growth. In a bid to increase access to finance in Nigeria, one of the major strategies is to boost the microfinance sector since the sector has a strong potential for promoting entrepreneurship.
It should be noted that some impact investors have been committed to increasing the dragnet of financial inclusion in Nigeria by making significant investments in microfinance services, which account for up to 50 per cent of capital deployed in financial services.
Microfinance institutions are the major providers of finance to the Micro, Small and Medium Enterprises (MSMEs). MSMEs being the largest job creators and contributors to economic growth have placed microfinance institutions at the center of financial inclusion. Institutions such as LAPO Microfinance Bank have focused mainly on the social and economic empowerment of low-income households through the provision of access to responsive financial services on a sustainable basis.
With growing population, a potential for economic growth combined with other equally favorable factors, Nigeria is laden with opportunities for impact investing that can be deployed as a vehicle to fund, galvanize, and increase measures that improve millions of lives; financial inclusion is definitely beckoning on impact investing in this regard.
